Monopoly, Inflation, and Economic Crisis

This paper presents a Marxian theory of inflation under conditions of stagnation in a monopoly capitalist economy. The inadequacy of monetarist and Keynesian explanations of the 1970s inflation is discussed briefly. A more extended critique is offered of two influential non-mainstream theories of inflation, the mark-up pricing theory of inflation and the conflict theory of inflation. Current versions of those theories are shown to rest on the implicit assumption that capital does not pursue the maximum possible profits.A theory of monopoly pricing is developed which rests on the assumption that monopoly capital pursues the highest rate of profit that can be sustained over the long-run. On the basis of this theory of monopoly pricing, it is shown that in a period of prolonged stagnation (such as the 1970s) monopoly sector pricing will set off an inflation process, which is then perpetuated through the interaction of monopoly capital, competitive capital, and the working class. The theory of "crisis inflation" presented in the paper incorporates class conflict and mark-up pricing in a manner that is consistent with profit maximization by capital, thus overcoming a major problem with current inflation theories based on conflict or mark-up pricing.The role played in the inflation process by state interventions, such as corporate bailouts, Keynesian demand management, and central bank monetary expansion, is considered. Possible methods of ending crisis inflation are discussed.